The Covid-19 era was truly unprecedented on Wall Street and let to the "meme stock" craze. As the unknown virus spread, most US citizens who were deemed "non-essential" workers, were told by their managers to work from home. With no sports on television, many gyms closed, and little in the way of activities to do, many people who previously never traded stocks began to take up interest in Wall Street and open Robinhoodbrokerage accounts.
These new investors, flush with stimulus checks from the government, took to social media platform Redditt to discuss stock ideas. Under the "subreddit" r/WallStreetBets, a large group of savvy retail investors banded together to orchestrate a short squeeze. The plan worked, and institutional investors who were heavily short the stock were "squeezed" sending GME shares soaring by more than 6,000%.
Normally, most short squeeze stories would end with the stock crashing back to Earth and investors who failed to sell into the spike, out of luck. However, the GME story is different in that there have been multiple short squeezes, and each time management has made the prescient decision of raising cash through stock sales near the top, translating to a massive cash hoard for the company.
GameStop enjoys more than $4 billion in cash reserves as a result of management's prudent stock sales. This large cash hoard gives the company flexibility to make strategic investments, acquisitions, or pay a special dividend.
The recent price and volume action in GME suggests that a breakout may be imminent. GME shares threaten to breakout of a multi-week bullish pennant. Should the breakout occur, 8% of the share float remains short, a cocktail for yet another potential short squeeze.
GameStop has entered into a multi-year strategic deal with tech juggernaut Microsoft (MSFT) to provided customers with enhanced digital solutions. The deal, which leverages Microsoft Cloud, will help GameStop to establish a cohesive ecosystem that allows players to transfer "assets" seamlessly between games, augment the company's back-end and in-store solutions, and expand its connection to the global gaming community.
GameStop, the leading video game retailer, has parlayed its "meme stock" status into a giant cash hoard. Meanwhile, a strategic partnership and strong technical chart suggest that the stock has big potential into 2025.
Zacks Rank #5 (Strong Sell) stock Starbucks is the top roaster and retailer of specialty coffee worldwide. In addition to its fresh, rich-brewed coffees, Starbucks also sells premium teas, breakfast sandwiches, juices, and other snacks through its more than 38,000 cafes globally.
Beyond its heavy retail presence, the company also generates revenues through licensed stores, consumer packaged goods, single-serve coffee products, and read-to-drink items sold in grocery stores and warehouse clubs like Costco.
Reduced consumer traffic during fiscal 2024 has negatively impacted comparable store sales. The company's North America segment declined 2%, international declined 2%, and China plummeted 8%, year-over-year. Starbucks faces three major, difficult-to-reverse hurdles in the future, which include:
· Waning Consumer Interest: SBUX was once the hot and hip "go-to" place for people to grab a coffee. However, as time has passed, the company has lost the benefit of being new and hip.
· Health Concerns: More Americans are waking up to the obesity epidemic and the causes behind it. Unfortunately for Starbucks, many of the company's highest-margin drinks are packed with sugar. As citizens become more health conscious, SBUX sales should be negatively impacted.
· Increased Competition: Starbucks has already largely saturated most major global markets. In addition, increased competition may eat into existing locations.
The company anticipates stubborn headwinds to persist with challenging consumer environments in the Middle East, South East Asia, and parts of Europe. To make matters worse, the company's adjusted margins declined due to increased marketing expenses, macro challenges, and an increase in benefit-related spending.
Zacks Consensus Earnings Estimates suggest that SBUX EPS will see negative growth for the current quarter, next quarter, and full-year 2025 periods.
The SBUX share price mimics the fundamentals and should be a red flag for investors interested in outperforming the market. SBUX shares have dramatically underperformed the market over the past five years, gaining a minuscule 1.6% versus the S&P 500's 90% gains over the same timeframe.
Despite its global dominance, Starbucks faces significant headwinds. Declining consumer interest, health concerns surrounding sugary drinks, and increased competition adversely impact earnings growth.
If Santa should fail to call, bears may come to Broad and Wall." – Yale Hirsch
It's been a sluggish start to December with the S&P 500 down about 1% on the month as of early Tuesday morning.
On a positive note, the days surrounding the Christmas holiday have historically been some of the most bullish times of the year. Dating back to 1988, the second day before Christmas (which fell on yesterday this year) is the most bullish, with the S&P 500 rising more than 70% of the time over the past 36 years. That trend played out again yesterday as the S&P 500 rose 0.73%, recovering most of the nasty mid-December sell-off in the process.
Today marks the final trading day before Christmas and is also the first day of a period known as the Santa Claus Rally (SCR).
First discovered by Yale Hirsch (creator of the Stock Trader's Almanac), the SCR is a seven-day period that consists of the final five trading days of the year, along with the first two trading days of the New Year. As markets are closed on Wednesday for the Christmas holiday, today marks the first day.
Since 1950, these 7 glorious days tend to be overwhelmingly green, as the S&P 500 posts an average gain of 1.3% and is positive nearly 80% of the time. In fact, no other 7 days of the year are more likely to finish higher! While the period failed to close positive last year, the SCR had been higher in each of the prior 7 years.
If these 7 days are higher, it typically bodes well for the full year. In fact, since 1950, when we have a positive SCR, the S&P 500 gains an average of 10.2% the following year and is higher 72.4% of the time.
The technology sector is attempting a breakout here after a minor pullback. Semiconductor stocks in particular are once again showing strength. Shares of Astera Labs are hitting all-time highs on Christmas Eve, outperforming the major indexes. The provider of semiconductor-based solutions is taking full advantage of the artificial intelligence theme. ALAB stock has soared nearly 300% since its March IPO.
Intelligence and AI play Palantir is another stock hitting all-time highs on Tuesday morning. A Zacks Rank #2 (Buy) stock, Palantir has soared on the heels of a bevy of brokerage upgrades and renewed government contracts. PLTR stock is up more than 380% heading into the final week of the year.
Looking at the 'Mag 7' stocks, one stood out on Tuesday as tech giant Apple also hit a fresh all-time high. The big story this year has been the rise of Apple Intelligence, the company's personal intelligence system that uses generative AI models to help with everyday tasks. After a relatively weak start to the year, AAPL stock has come on strong lately and is up better than 30% in 2024.
Today marks the first day of the Santa Claus Rally. As we saw, this seven-day stretch is typically positive and has shown predictive power.
Positive seasonality represents a major tailwind for stocks. Make sure to keep an eye on how markets perform over the SCR period. From all of us here at Zacks, we wish you happy holidays and a prosperous New Year.
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